Greece Votes

Prime Minister Papandreou is about halfway through his speech, urging Parliament to approve the bailout agreement. The confidence vote will be taken right after he finishes. The oddsmakers say he will win the vote, but it's not a sure thing. And even if he wins, he may have to step down to allow a coalition government to take over.

Papandreou's call for a referendum Monday was a stunner, sending markets south for two days. Under fierce pressure from Merkel and Sarkozy, and deserted by his Finance Minister Venizelos, he caved on the referendum plan, bringing us to this moment and this vote.

Greece needs the 8 billion Euro next tranche of the bailout, so Parliament should say yes. Whether Papandreou survives remains to be seen. With Greek uncertainty settled for a moment, attention will turn to Italy.

Ten year Italian bond yields closed today at a Euro-era high of almost 6.4%, despite the European Central Bank(ECB) entering the market as a heavy buyer. 6.0% is the initial danger threshold; 6.5% is the level at which Greece, Ireland and Portugal came to the Troika (the European Union (EU), the IMF, and the ECB) to ask for help. The Troika does not, under current arrangements, have remotely enough firepower to fund Italy, if their sovereign debt continues under attack.

As discussed before, the ECB by itself has the firepower to stand behind all sovereign European debt. They would only have to declare their commitment to do so, and the markets would settle down. But the Germans are relentlessly committed to not letting the ECB monetize any sovereign debt, beyond "occasional" purchases on the secondary market. They do not, under any circumstance, want the ECB doing what the Fed did in the US in 2008-2010, which was to pour money and liquidity into every crack and crevice where it seemed to be needed. It worked here, without inflation; but the Germans are convinced letting the ECB do the same in Europe would be the first step on the road to ruin.

The G20 meeting ended today with nothing new in the way of commitments from the US, Japan, or China to support Europe or its EFSF fund - leaders from these countries said quite clearly: "Europe - you have the resources needed. Get your act together and solve the problem."

Greece is possibly quieting, but still edgy. Italy on the edge. No new rescue funds from the rest of the world. My forecast? Still the same: some form of train wreck within a six month time frame, but possibly much sooner. Impact for us? Some level of financial crisis, quite possibly taking down one of our big banks, most likely Bank of America. Not a pretty picture, and one that will surely impact the 2012 elections.